Customer retention is something that every successful business should be practicing. It is much more than earning customers’ loyalty. It is integrating your customers to be intertwined with your company’s ecosystem.
A thriving business’ biggest asset is its customers. Although lead generation is great, customer retention is where the money’s at. Did you know that 68% of sales come from existing customers?
Strategies to Improve Your Customer Retention
The only thing better than gaining a new customer is actually retaining an existing customer. There is an intoxicating allure of gaining new customers, but it is statistically proven that by retaining current customers there is a great return on your investment, and it costs 5-25 times less than acquiring new customers.
By emphasizing customer retention as a key performance indicator (KPI) for your business, you can ensure that your priorities are in the right place. It’s not just getting a new customer, it’s making sure your existing customers are happy and will continue to use your product or services.
Customer Retention: Defined
What is customer retention? Before getting your ducks in a row, you need to know what customer retention really is. First, take note of how you are currently doing in this department, meaning benchmark where your re-occurring customers are and how many you have. Take an objective measurement of your customer retention rate.
What is the customer retention rate you may ask? Simply, it’s the rate that customers return to your business. There are a few ways to measure your retention rate. For example,
Retention Rate = ((CE-CN)/CS)) x 100
CE = Total number of customers when the period ends
CN = Total number of new customers that you’ve acquired during that period
CS = Total number of customers at the beginning of the period
To take it one step further, an example would be if you start a quarter with 1,000 customers, but you lose 200 by the end of the period but you also gain 300 so the total would be 1,100 customers. The formula about it would look like this:
((1,100-300)/1000) x 100 = 80
So 80 percent would be your retention rate. Is this good or bad? Well, it depends on your industry and the specific niche your business resides in. In some industries, 80% is a great retention rate, while in others it’s a pause for concern. Once you have benchmarked your current customer retention rate, you can now bring context to it by looking at your industry’s standards of customer retention rate and seeing where you should fall.
Regardless if you have an amazing or very poor customer retention rate, there is always room for improvement. No matter what, improving your retention rate will always improve your business.
Why is Customer Retention so Important?
You’ve worked hard in gaining a new customer, so why would you want them to slip away? According to a study done by Harvard Business Review, onboarding a new customer can be anywhere from 5 to 25 times more expensive than retaining a current customer. With a mere 5% increase in retention rate, you can increase profits by 25 - 95 percent. As we mentioned above, returning customers makeup over 50% of existing sales.
Let’s take a deeper look at why retaining a customer is more profitable than gaining new ones. Well, if you think about it, you are not going to be spending the same amount of marketing, sales, customer training, or other onboarding costs on existing customers because they already know what they’re buying. And, returning customers tend to be happier and more likely to refer family or friends to your business.
Did you know that with a referral from a friend, people are 4 times more likely to make a purchase? And, customers acquired from a referral have a 37% higher retention rate and are 81% more likely to engage with brands that have rewards programs.
To put it frankly, healthy customer retention makes every part of your business more cost-effective and efficient. So let’s start improving your customer retention.
Improve Customer Retention with These Simple Steps
So we’ve definitely covered how important it is to have a good retention strategy. But let’s discuss how to actually do so.
1. Start with the onboarding process
You will never have a second chance to make a first impression. Start your customer’s experience and journey with a positive and simple process. After the initial excitement of a new purchase of a product or service, keep the spirits high by having a smooth onboarding process. Customers will always default back to the first impression they had with a company. If it was positive, they are more likely to return.
A positive and easy onboarding process can set you up for future success. Make it as personalized as possible, hands-on, and remorse as much friction or unclear answers. Customer onboarding keeps customers engaged by helping them clearly understand the product or service and giving them a reason to log back in and use your product again and again.
- Starting with the signup process, keep it short as possible making it even easier and less time-consuming for customers to get set up.
- Next, your welcome email should include a thank you, and best practices to get them started, and a way back to your products where they can find additional resources and new product information and keep your company top of mind.
- The first log-in should be clear and concise. Take out any guesswork from your customers. Give your customers a quick win, this can be in the form of providing value to them once they’ve completed this step and showing them that the more they use your product, the more they’ll benefit from it.
- Product walk-through should be something easily taken advantage of or easily skippable. New customers may already be familiar with your product, so give them the option to easily opt-out. Make it super simple for them to come back later and pick up right where they left off. Lastly, make it easy for customers to find extra resources or support if they need it. Make FAQ and help sections as visible as possible.
2. Track and Analyze your Churn Metrics
Your company should diligently track and analyze your KPI’s and metrics. Among them, you should be paying close attention to your churn rates and the reasons your customers may have decided to churn. Churn rate and customer retention have a direct correlation with one another.
Churn rate, “the annual percentage rate at which customers stop subscribing to a service or employees leave a job” (Oxford Dictionary). Done correctly a churn analysis provides detailed insights on the factors that are causing your customers to leave. It also gives a full picture of your customers’ needs and sees whether or not they are being met.
Lost customers mean lost revenue. Excess churn is terrible for your bottom line. So reducing churn is key to having a successful business and is one of the best practices to increase your ROI.
A simple way to calculate churn:
However, there are different levels of churns. For example, a customer could delete the account entirely and end the relationship with your company. Or, they could downgrade from a Pro plan to a Basic plan. Along with different levels of churn, churn rates can fluctuate due to seasonality. Some types of customers will churn more frequently than others and certain subscription levels may retain customers better than others. Churn can be complicated but a very important metric to track to help evaluate customer retention.
By understanding and monitoring your churn rate, you’re able to get a full analysis of what your customers see and feel about your products and services. By having a grasp on this, you’re able to improve when and where it may be needed. This will ultimately help you increase your customer retention rates because you’re able to see where your customers fall off and can adjust accordingly.
3. Build Trust with Your Customers
Customer retention relies heavily on whether or not you are a reliable brand. Returning customers and loyal customers will always come back to what they know and if they know you deliver on what you say, they are even more inclined to come back and refer you to friends. But cultivating the bond of trust between you and customers takes time.
There are only two things that are true when it comes to building a solid foundation of trust between you and your customers:
- Do not assume that they automatically trust you just because they buy from you
- Trust will take time to build, and does not happen overnight
When customers are deciding to make a purchase, 81% of them say that trust is an important factor in their buying decision. But, building trust is not as simple as a mathematical formula and can not be implemented overnight. Reliability is a huge factor in building trust, so start cultivating your reliability by consistently delivering value to your customers. By always following through on your promises or promotions your brand offers will have an impact on whether or not your customers have faith and trust in you.
As we mentioned above, building trust takes time. So here are a few steps you can take to build a solid foundation of trust for your customers:
- Provide the best service possible. One of the most important factors in earring your customers’ trust is through its customer service. It is the most direct channel between your brand and its customers. And in turn, the biggest moment for a business is to demonstrate its value and legitimacy. Having exceptional customer service shows compassion, commitment to the happiness of your customers, and accountability.
- Showcase positive reviews and testimonials. Consumers are more likely to trust a brand where they see other people using and liking the products. Especially when testimonials showcase that the product or service really does what is advertised. By promoting positive interactions with your brand, others are more likely to take notice and have more trust in using your products.
- Be honest. By being honest it shows that there are real people behind your company and that you truly care about their experiences. Consumers trust honest and transparent companies. Don’t have misleading marketing or promises on sales that you are unable to deliver on. By being straightforward and ethical it builds your brand up and promotes a foundation of trust for your customers to rely on.
- Ask and act on feedback from your customers. Asking their opinions and what is working for them and what is not demonstrates that you really do care about them. But also gives you insight into how to fix a problem before losing any customers. When they see that you are working towards improving their experience, they are more likely to stay and have patience with your company instead of leaving at the first sign of rock waters.
- Be easily accessible. Have an open line of communication between you and your customers. By opening the doors to communication with them, you’re able to hear what’s going on from the ground floor. This also underscores the importance of how much your customers matter.
By building a solid foundation of trust with your consumers you’re able to prove to them that you care about their experience and work towards making the product or service better for them. Once your reputation is a trustworthy one, your customers will have no problem staying with you for the long haul or recommending you to a friend. With trust, your customer retention will also be as solid as a rock.
4. Easily reach your customers
You may have a huge customer and subscription list, but you need to be sure that you’re able to successfully reach them. You want to make sure the important information they would like or any upcoming events or promotions will land in their inboxes. If you’re unable to successfully communicate with your customers and give them the deals they deserve, you’re never going to have repeat and loyal customers.
Make sure that your emails will always be delivered by cleaning your lists. This process can be done by running your lists through a service such as Emailable, where they will go through each and every individual email to make sure that it is valid, reliable, without syntax errors, and many more. They will then give you a deliverability score on each email so you know which emails are valid and will have successful deliverability.
By ensuring that your messages reach your customers, you’re not just building a solid form of communication but you are also increasing the reliability between you and them. You are able to send important information, any upcoming deals, or special offers that they may not have known otherwise. A customer will feel much more confident in a brand if they were the first to see a special promotion delivered directly to their inbox rather than from an online forum.
Customer retention is a huge asset when it comes to your business and its success. By having a successful customer retention rate, your business will also flourish. By retaining customers, you can help them derive more value from a product, encourage them to share feedback, and build a community of like-minded users.
As we mentioned before, a returning customer is a better investment than acquiring new customers. After following the steps above, you will be able to analyze and get a baseline for your current retention rate and track your improvement as you adjust.